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The rating agency said the outlook revisions reflect its view that a positive rating action may follow in the next two years if the companies maintain their "conservative financial and dividend policies," which would result in their funds from operations-to-debt ratio remaining above 60% and debt-to-EBITDA ratio below 1.5x.

"We would expect both companies' capex plans to remain generally intact, without major revisions upwards. Also, we would expect no other meaningful cash outlays from the companies, such as acquisitions or share buybacks," Ratings wrote Dec. 11, affirming the companies' BBB- issuer credit ratings.

Ratings' base-case forecast on MMK assumed a decline in EBITDA generation to a range of US$1.7 billion to US$1.8 billion in 2019 and US$1.4 billion to US$1.6 billion in 2020, compared to US$2.4 billion in 2018, due to lower steel prices and higher iron ore and coking coal prices. It expects the company to continue benefiting from domestic market premiums in Russia, although to a smaller extent than in 2019, as MMK sells over 80% of its products within the country.

Ratings' base-case forecast on NLMK assumed an EBITDA decline to a range of US$2.5 billion to US$2.6 billion in 2019 and US$2.3 billion to US$2.5 billion in 2020, compared with US$3.6 billion in 2018.

The decline is due to lower prices and production resulting from the modernization of NLMK's blast furnaces and basic oxygen furnaces. Ratings expects NLMK to continue exporting about 60% of its products, with 18% of its sales in Europe.

"We assess liquidity at both MMK and NLMK as strong, due to their solid cash balances, sufficient liquidity lines, manageable debt maturities, and flexibility in dividend payments, in case of lower EBITDA generation," the rating agency wrote. "Both companies have solid relationships with Russian banks and have proven access to capital markets, NLMK having more experience and track record due to higher absolute debt."

Ratings said the outlooks on Evraz PLC and PAO Severstal, NLMK's and MMK's main Russian peers, are stable at the moment.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.